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transported by rail, the competition among the railroads and between railroads and alternative modes of transport, the quality of service rendered by railroads and that desired by their patrons, the investment patterns and needs of the railroads, and the public interest in a viable railroad system are all serious questions which must be examined.

In our initial report of November 5, 1971-340 ICC 886, at 823-3we related that several parties to the proceedings strongly urged the appointment or a special counsel, with a staff apart from our established organization to assist in the identification of issues and development of formal records.

Recognizing the impact of these proceedings upon the Nation's economic welfare, and of the general public interest in the development of an adequate record, we decided to seek the necessary funding to contract for special counsel and supporting staff. The mission of special counsel is to appear as a party to the proceedings representing the general public interest.

More specifically, he is expected to formulate issues, obtain, compile and analyze available information and data, present the results of his analysis as evidence in the proceedings, and cross-examine witnesses for other parties.

Upon analysis of the entire record, he should take a position on all issues, with a full statement of his views and reasoning, and recommend changes in the rate structure, the applicable law, or ratemaking policy which he believes the records establish are in the best interests of the Nation as a whole.

Mr. HUNGATE. Mr. Chairman, may I inquire at that point-
Mr. DINGELL. Mr. Hungate.
Mr. HUNGATE [continuing]. As to the statement there on page 3:

The mission of the special counsel is to appear as a party to the proceedings, representing the general public interest.

Does not the ICC do that in the absence of special counsel?
Mr. STAFFORD. That is right, sir.
Mr. HUNGATE (reading]:

More specifically, he is expected to formulate issues, obtain, compile and analyze available information and data, present the results of his analysis as evidence in the proceedings.

Does not the ICC do that in the absence of special counsel?
Mr. STAFFORD. Our general counsel would like to answer.

Mr. KAHN. If you are thinking in terms of public counsel as a member of the staff of the ICC, ICC does not have public counsel as does the CAB, or the FPC or FCC, for example, and the ICC has been subject to some criticism in the past for not having had public counsel on its staff.

Mr. HUNGATE. Let me ask this same point, then you thought it wise to respond to that criticism by employing counsel for this purpose; is that correct, Mr. Chairman?

Mr. STAFFORD. That was not the purpose. We did not reply to criticism in this matter he is referring to.

From time to time we have had suggestions from a number of sources that we ought to suggest

Mr. HUNGATE. Some of the suggestions I get are critical.

Mr. STAFFORD. All right. I think in the past 2 or 3 years the entire ability of the Congress, or the Government, to continue to govern

has been questioned in many instances and we happen to be one of them.

Mr. HUNGATE. Mr. Chairman, let's assume that the need was there. Apparently you thought the need was there and you do not recommend it. Is that right?

Mr. STAFFORD. For this case, we will develop-
Mr. HUNGATE. For having somebody available to formulate issues.
Mr. STAFFORD. Yes, sir.

Mr. HUNGATE. My question is, Why would this approach be made to a special counsel rather than acquisition of a regular counsel on the staff, adding someone to the regular, full-time staff?

Mr. STAFFORD. It is in my statement as we go on through, but it has to do with the complexities of the case.

Mr. HUNGATE. Could you help me right here with it, please?

Mr. STAFFORD. Yes. It has to do with the complexities of the development of this case that we are involved in. And

Mr. HUNGATE. You consider it better to handle it through a special counsel rather than a regular counsel you might add to your staff.

Mr. STAFFORD. Yes. Because of the nationwide interest in this, and the shipping and transportation community, we felt that it was the best policy to get a complete separation from Commission production and make this available for the outside

Mr. HUNGATE. Thank you, Mr. Chairman.
Mr. STAFFORD (continuing]. Outside consideration.
If I may proceed-

Mr. STAFFORD. The Commission received funding of $1,460,000 with which to contract with private concerns for economic studies and to contract for special counsel and staff.

For special counsel, $650,000 was provided. We estimate that the funding for special counsel, staff, and support will cover 2 years. If the proceedings are completed prior to that time, the funds not expended will be returned to the Treasury.

On the other hand, additional funds may be required to complete the proceedings. Although we do not presently anticipate that this will occur, it remains a possibility which should be mentioned. The $650,000 contract estimates $350,000 for staff salaries and $300,000 for whatever additional economic studies may be desired.

These figures are not firm, but the intent is to grant special counsel flexibility and discretion on how to spend the money. Since this is a cost-reimbursement contract, we have the necessary controls to assure the proper expenditure of the funds.

Our economic research contract calls for a series of studies involving the nature of the rail rate structure and how it has changed since 1966, the relationship of costs to the rate structure, the characteristics of demand for railroad service, the quality of rail service in relation to rates, and the various matters associated with the railroads' rates of return.

So far, we have obligated $575,000 for this work and expect to obligate $155,000 more by June 30, 1973. Work in these areas is in various stages of production and we expect to finish this first phase of the investigations by the close of fiscal year 1974. In addition, we have retained individuals on a consultant basis to assist us in certain study areas being developed by the Commission staff.

Mr. DINGELL. Mr. Chairman, not to interrupt you there--are you referring at this point to the RMC contract?

Mr. STAFFORD. Yes. The Commission is requesting an additional $450,000 for fiscal year 1974 to fund economic studies which were not contemplated when its first appropriation was sought.

As a result of increased emphasis on environmental issues, it is necessary to expand our present studies to consider more fully the question of how the demand for rail transportation of recyclable materials might respond to changes in rates.

In addition, the Commission staff has in progress an initial study of rail service characteristics. In developing the specifications for this study, it was found necessary to encompass a wider range of service considerations to provide a closer focusing on the rail service performance in relation to the demand for service.

Special counsel will have access to the results of the economic research performed under contract as well as internally by our staff. The studies will be used by special counsel in the second or hearing phase of the proceedings.

This subcommittee may be interested in the reasons the Commission chose to contract for economic studies and special counsel rather than use its own staff to perform the work involved. As we explained to the House Appropriations Committee on March 29, 1973, the reasons are compelling.

First, in recent years, the proliferation and sheer complexity of economic, regulatory, and other problems experienced by the transportation industry and the public it serves have threatened to overwhelm our capacity to administer the provisions of the Interstate Commerce Act committed to us by Congress.

The Commission has little or no control over the number or kind of proceedings it received for decision in the public interest. Legislation and judicial decisions continue to impose new and added decisional responsibilities on the Commission. Significant among these duties is the need to explore, in every proceeding, the environmental consequences of, and alternatives to, a considered proposal and to explain in detail the economic and environmental trade offs embodied in our final decison.

Despite the successes achieved through the Commission's constant efforts to streamline and improve its procedures, by comprehensive investigations and rulemaking proceedings, its limited budgetary resources, as well as its growing statutory duties, make it increasingly difficult to adjudicate these proceedings in the prompt and responsible fashion so vital to the smooth and efficient flow of our Nation's commerce.

As the Commission's caseload increases in both size and complexity, so does the need for experienced professional and supporting staff.

The assistance of economic experts, financial analysts, accountants, investigators and car service agents, and secretarial and other clerical support must be made available on a continuing basis to the Commission and its legal staff who are daily confronted with increasingly complex problems.

For example, these matters include sophisticated financing techniques, problems resulting from the creation of conglomerates and mergers, more refined cost finding in rate increase proceedings, the

pruning and rationalizing of existing railroad plant through abandonments, routing, merger, and the establishment and best utilization of needed railcar equipment.

Additionally, there is a continuing need in the economic area for (1) more timely and penetrating observation and interpretation of industry performance and trends, (2) better identification of underlying cases of carrier distress and shipper problems, and (3) greater evaluation of the economic consequences and effectiveness of regulatory action or inaction.

These are the current constant demands on the Commission with a budget which provides for employment of approximately 1,800 persons.

To devote the number of man-hours required to conduct the economic studies and carry out the functions of special counsel as is required in Ex parte 270 and related cases would so seriously tax our staff's ability to carry out the many functions assigned to them that many areas of administering important provisions of the act would come to a complete or so substantial a halt that there would be, in effect, no regulation at all. In-house handling of the work required was simply inappropriate, since it would prevent effective regulation in other areas committed to our jurisdiction.

Second, and most importantly, when we requested the necessary funding to complete our investigations, a Presidential freeze on hiring new employees existed. As a necessary condition to our obtaining the funding, we agreed to use the funds to contract with outside sources and in no manner increase our employment.

In long-term costs and benefits to the government, this is an eminently sensible solution. It would be difficult to obtain qualified and competent employees for the limited duration required to conduct the extraordinary research requirements involved in the economic studies. Consequently, it was more conducive to contract for these economic studies rather than augment the Commission's staff on a temporary basis.

Insofar as special counsel is concerned, many of the above reasons are applicable. More significantly, however, the independent and impartial participation required of a special counsel representing the the best interests of the Nation as a whole could best be performed by an outside source having no prior affiliation with the parties to the proceedings.

We required a lawyer of unquestioned integrity and judicious temperament with broad knowledge of national economic problems and policy. To provide for this objectivity, it was decided at the initial stages of the proceedings that special counsel should be an independent contractor, free from control, direction, or supervision of either the Commission or the parties.

As we previously made known to you, our search for a man with the unique qualifications we deemed required of special counsel was a difficult task. The necessity to offer compensation for special counsel equal to the demands of the duties involved required that we be practical as well as realistic.

The proposed definitive contract will be a cost-reimbursement type of contract, under which the contractor receives no fee.

Accordingly, the contract will contain those standard provisions which implement the requirements for such contracts set forth under

the cost principles in the Federal Procurement Régulations, subpart 1-15.

Briefly stated, subject to the specific limitations of the cost principle regulations, the allowability of cost also depends upon reasonableness, allocability, and consideration of generally accepted accounting principles.

Within the above framework, we believe that the cost of the special counsel and his staff will be much less than one would expect to incur under the usual contract arrangement with a firm providing services requiring highly qualified professional personnel.

Our judgment, in part, is based on the fact that costs under the contract will be primarily salaries and minor allowable actual expenses with little, if any, overhead. The overhead alone for firms routinely providing highly professionalized services is often in excess of 100 percent of direct salaries which would in itself double the final cost to the Government.

A condition of the letter contract is that the general counsel is to receive compensation not to exceed $60,000 a year. This compensation includes all fringe benefits and deferred compensation, to which persons both in Government and the private sector are entitled.

We cannot precisely equate the compensation of the special counsel with others in positions of high responsibility. We are aware, however, that the compensation of general counsel for a number of the major railroads, for instance, who practice before us, range from $60,000 to $90,000 a year, exclusive of fringe benefits.

We are also aware that the billing rates for highly qualified professional personnel in the major management accounting firms routinely providing services to the Government under contract far exceeds the compensation of the special counsel. We believe that compensation for the special counsel not to exceed $60,000 a year will stand the test of reasonableness. There is no fixed rule; good judgment and a clear conscience are the ultimate standards.

In closing, I wish to assure you that the independence of the Interstate Commerce Commission as arm of Congress has been maintained throughout our contracting for special counsel and for economic studies. Neither the White House nor anyone else was in any way involved in our selection.

We should note for the record that the Commission and its staff have cooperated fully and made full disclosure to this committee and to the General Accounting Office.

We will be happy to answer any questions we can.
Thank you, sir.
Mr. DINGELL. Thank you, Mr. Chairman.

The Chair, if you wish, Commissioner Brewer, will be happy to recognize you for a prepared statement or any comments you wish to make at this time.

Mr. BREWER. I have no statement at this time.

Mr. DINGELL. The Chair also notes the presence of the other commissioners in the room this morning and expresses the thanks of the committee to them for being present, and to you ladies and gentlemen, if you have any statements or comments you would like to submit, the committee will be pleased to receive them at such time as is appropriate.


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